Spanish fly in the ointment for drinkers

The pain in Spain falls mainly on the grain. Well, at least the grain distillers. The raft of bad news that has been flowing steadily out of Spain for the last two months is bad news for Allied Domecq and Guinness with their heavy exposure to the country's drinks industry.

The cocktail of high unemployment, falling consumer spending, fearful interest rates, rising indirect taxes, and a smattering of terrorism to boot is not making for much of a happy hour.

The City, though, is only just waking up to the ominous economic news that has flowed from Spanish shores. Drinks analysts are either on holiday or side-tracked by events closer to home - notably the final stages of the Carlsberg-Tetley saga and the appearance of Pelican on Whitbread's acquisitive menu.

Well, it's time to focus elsewhere. Guinness's problems with the Cruzcampo brewing business a few years ago have been well catalogued, but investors must surely be asking whether it isn't time that this unresponsive, Spanish donkey was consigned to the knackers yard. One leading analyst reckons that the acquisition costs and subsequent write-offs associated with Cruzcampo have cost Guinness more than pounds 850m for a business that is making around pounds 20m a year.

But that is small beer compared with the soaking Allied is taking. Roughly half of the Pedro Domecq business that Allied bought a couple of years ago is in Mexico - ravaged by political unrest and a currency crisis - and the remainder is in Spain.

Senior management at IDV, the drinks arm of Grand Metropolitan, can only be having a quiet chuckle among themselves. With a touch of good fortune, or amazing foresight, the company earlier this year raised prices for J&B. Spain just happens to be the biggest single market for J&B, which is also the world's number two whisky behind Johnnie Walker.

Spain, it seems, is not the place for bulls that it used to be.